FX168 Financial News (Asia Pacific) - On Friday, September 27th, the Chinese stock market achieved its best weekly performance since 2008, pushing Asian stocks to a two and a half year high. Beijing introduced a large-scale stimulus plan to boost the economy, while the significant drop in oil prices benefits global inflation slowdown.

Morgan Stanley Capital International (MSCI) Asia Pacific region (excluding Japan) broad stock index rose by 0.5%, reaching the highest level since February 2022 earlier in the day, with an expected increase of 5.3% this week, mainly driven by a strong rebound in the Chinese stock market.

Chinese blue chip index rose by 3.5%, with a weekly increase of 14.6%, the largest weekly gain since November 2008. The Hang Seng Index in Hong Kong also rose by 1.9%, with a weekly increase of 11.2%, marking its best performance since 2009.

"Beijing seems to have finally decided to quickly launch a series of stimulus measures... Beijing acknowledges the severe economic situation and the ineffectiveness of scattered policies, which should be taken seriously by the market," said Lu Ting, Chief Economist of Nomura Securities in China, "But in the end, Beijing still needs to introduce well-considered policies to address many underlying issues, especially how to stabilize the real estate industry, which has been shrinking for four years."

As expected, the People's Bank of China lowered the reserve requirement ratio for banks by 50 basis points on Friday and reduced the 7-day reverse repo rate by 20 basis points. It also cut the 14-day reverse repo rate by 20 basis points for the second time this week.

Reuters reported on Thursday that China plans to issue around 2 trillion yuan ($284.43 billion) of special bonds this year as part of the new fiscal stimulus.

Boosted by Chinese stimulus measures, the bulk commodities performed well this week. Iron ore prices climbed back above $100 per ton, copper prices surpassed the key level of $0.01 million per ton, gold hit a new all-time high, and silver rose to a 12-year peak.

Crude oil became a loser this week as Saudi Arabia plans to abandon the unofficial target price of $100 per barrel and increase production, leading to a significant drop in oil prices.

Brent crude oil futures fell by 0.4% to $71.31 per barrel, with a cumulative decline of 4.2% this week. This is beneficial for global inflation slowing down, as central banks accelerate interest rate cuts, which is also bullish for consumer spending.

Yen reversal.

The results of the first round of voting for the Liberal Democratic Party of Japan show that Minister of Economic Security Takarabe and former Defense Minister Ishiba received the most votes and advanced to the second round of voting.

The market has bet on Takarabe's potential victory. She is a strong critic of the Bank of Japan's interest rate hike efforts. The derivative data shows that the market expects the Bank of Japan to raise interest rates again this year with only a 30% probability.

After the first round of voting, the dollar rose 1% against the yen to 146.23 yen. The Nikkei index rose by 1.8%, with a 5% cumulative increase this week, mainly benefiting from the yen weakening.

"Currently, the yen is under pressure due to the risk of the Bank of Japan being pushed towards a dovish stance, but we must remember that the narrowing of the yield spread (which is a key driver of the yen's movement) may still be dominated by the Fed and be favorable to the yen," said Charu Chanana, chief currency strategist at Shengbao Bank.

However, former Defense Minister Ishiba defeated Minister of Economic Security Takarabe in the Liberal Democratic Party presidential election, winning in the final election. He is expected to be appointed as prime minister after the parliamentary vote next week. Due to this development, the yen reversed its downward trend against the dollar, rising from 146 to around 143.

In other aspects, during the Asian trading session, US Treasury bond yields remained stable. Overnight, due to lower initial jobless claims in the US, the market reduced the expectation of a 50 basis point rate cut by the Fed in November from 57% the previous day to 51%.

This week, the two-year US Treasury bond yield rose by 6 basis points to 3.6348%, and the ten-year Treasury bond yield rose by 7 basis points to 3.789%.

Investors are waiting for the release of the Personal Consumption Expenditures (PCE) Price Index later in the day, which is the Federal Reserve's preferred inflation gauge. The market predicts a monthly increase of 0.2% in this index, with expectations still mixed for the Fed's rate cut in November.